Credit utilization: the score factor you can change in a month
Most of your credit score moves slowly. Payment history builds over years, and account age only grows one day at a time. Credit utilization is different. It can change your score within a billing cycle or two.
What it is
Utilization is how much of your available revolving credit you're using, as a percentage. Credit cards count. Installment loans like a car loan or mortgage generally don't.
Utilization = card balances ÷ total card limits
Hypothetical: you carry $2,400 across cards with $8,000 in total limits.
$2,400 ÷ $8,000 = 30%
Why the timing trips people up
Card issuers usually report your balance to the credit bureaus once a month, often on the statement closing date, not the due date. So even if you pay in full every month, a big balance on the statement date can show up as high utilization.
Fix: pay down the card a few days before the statement closes. The reported balance drops, and so does your utilization.
Two ways to lower it
- Lower the balances. The obvious one.
- Raise the limits. If the same $2,400 sits on $13,000 of total limits (say, after a $5,000 limit increase), utilization falls to about 18%, with no change in spending.
Closing an old card works the other way: you lose its limit, and utilization goes up. That's one reason people are often told not to close their oldest no-fee card.
How low is low enough?
There's no magic number published by the scoring companies, but lower generally scores better, and people with top scores tend to keep it in the single digits. Both overall utilization and the utilization on each individual card can count.
The good news
Utilization has no long memory in most scoring models. Once the lower balances are reported, the score typically reflects it on the next update. That makes it the best lever to pull a month or two before applying for a mortgage or car loan.
More on how the whole score is built: how credit scores are calculated. And a deeper look at this one factor: credit utilization.
General information only. Not financial or credit advice.